FinCEN’s Crypto Rule Is The “Definition of Bad Regulation;” Market’s Don’t React

The Financial Crimes Enforcement Network (FinCEN) issued its new proposed rule extending anti-money laundering (AML) regulation to non-custodial wallets on Friday.

Under the latest proposed rules, banks and money service businesses that involve exchanges and custodians would be required to keep records and verify the identity of customers transacting greater than $3,000. For those above $10,000, they should report to FinCEN in the form of a currency transaction report.

The information to be collected includes the name and address of the sender and receiver, type and amount of wallet used in the transaction, time and value of the transaction, and any other payment instruction or related information.

These proposed rules, “which applies to financial institutions and is consistent with existing requirements, is intended to protect national security, assist law enforcement, and increase transparency while minimizing impact on responsible innovation,” said Secretary Steven T. Mnuchin, in the official announcement by FinCEN.

The bureau within the U.S. The Department of the Treasury is requesting comments on these proposed rules for which the public only has 15 days, that too right in the middle of the holiday season — “midnight rulemaking.”

Doesn’t Really Help Anyone

According to the crypto resident lawyer, Jake Chervinksy, General Counsel at Compound Finance, “It could’ve been worse (really), but it’s still a terrible rule in both process & substance.”

The proposal follows a global trend as already seen in Switzerland and France, where AML regulation is extended to transactions from virtual asset service providers (VASP) to wallet.

The “bright” side is it doesn’t require KYC for every transaction or outrightly bans self-custody or even prohibits the act of using a permissionless network, said Chervinksy.

Still, it is an awful rule because, first, it doesn’t accomplish its state goal of stopping bad actors or helping law enforcement with its job. Second, “it infringes on US citizens’ financial privacy rights.” Law enforcement has been required to subpoena VASPs to get information about customers; this rule would force them to hand it over automatically, explains Chervinksy.

Third, “the rule is vague & ambiguous,” in the way that who owns non-custodial smart contracts or how does one provide they own a private key.

It is simply the “definition of bad regulation,” he said.

Bullish, Not as Invasive as Feared

The rules followed Wyoming Senate-Elect, several US lawmakers, and Coinbase CEO sharing their concerns about the rumored regulations by the Treasury Secretary on self-hosted digital wallets.

It is expected that next week the regulator is going to release guidelines for self-hosted digital asset wallets as well.

Interestingly, the market remained unaffected by FinCEN’s midnight rule announcement. It could be attributed to the fact that the market knew that some form of rules were coming its way, and they had been expecting the worst-case scenario.

“Not as invasive as feared. Bullish,” tweeted trader and economist Alex Kruger who says, these proposed crypto regulatory changes would impact the likes of Coinbase and Circle and won’t be breaking DeFi or smart contracts.

“New proposed FinCEN rule breaks DeFi,” said Jeremy Allaire, CEO of Circle.

DeFi tokens actually pumped on the regulatory news. The rule likely broke DeFi integrations in custodial platforms, i.e., “a regulated exchange that provides their customers with access to a DeFi protocol.”

As Hayden Adams, creator of DEX Uniswap, noted, “Ethereum is the closest thing to a country that Uniswap has.”

The fact that the cryptocurrency markets, as a whole, didn’t react to the news is a bullish sign and when that happens, “the trend in the ensuing direction is usually violently enhanced.”

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Author: AnTy

FinCEN Opens Job Positions for Crypto Policy Advisers Ahead of Proposed Wallet Regulation

The Financial Crimes Enforcement Network (FinCEN), a top policy enforcement arm of the Treasury Department, has been rumored to be in the process of developing crypto regulations for a while.

These rumors have now been given new life as the regulator recently posted two job listings for crypto advisers.

Qualified Applicants Only

Published last week, the listings showed openings for Strategic Policy officers. These professionals will primarily assist the agency in developing policy responses to cryptocurrencies. They will also issue advisories to liaise with financial institutions and engage in crypto policy collaborations with private and public sectors.

The details of the job listings show that FinCEN wants to improve its crypto policy acumen. Both positions will receive top clearance, and they are full-time positions. Candidates are to have experience in strategizing, drafting, and researching crypto policy.

These requirements show that FinCEN is looking to get more than just washed-down regulatory policies that will do no good for the crypto space.

Talks of policy developments from the FinCEN have swirled throughout the year. In February, Treasury Secretary Steve Mnuchin alluded that the agency was working on drafting regulations for cryptocurrencies across the countries.

Many Talks, Little Action

Speaking to Congress on the President’s $4.8 trillion budget proposal, the Treasury Secretary explained that the budget was also set to address effective cryptocurrency monitoring and enforcement against criminals. He said in part:

“We’re about to roll out some significant new requirements at FinCEN [Financial Crimes Enforcement Network]. We want to make sure that technology moves forward but on the other hand, we want to make sure that cryptocurrencies aren’t used for the equivalent of old Swiss secret number bank accounts.”

The Treasury Secretary revealed that his department would collaborate with several other regulators, including the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

So far, there hasn’t been much in terms of regulatory oversight from the agency. In September, it issued an announcement stating that it would seek public comments on forthcoming proposals that would strengthen rules on monitoring and reporting financial institutions’ requirements.

The announcement claimed that the proposals would address terrorist financing, money laundering, and others, suggesting that crypto-related firs would also be in the regulator’s crosshairs.

Last week, Coinbase CEO Brian Armstrong revealed on Twitter that the FinCEN was most likely looking to rush through crypto regulations with the current administration on its way out. Mnuchin is set to be replaced by Janet Yellen at Treasury, and according to Armstrong, the current administration will be looking to make one last mark.

The CEO accused the FinCEN of trying to track self-hosted wallets. This move could essentially break down a significant anonymity barrier on which the crypto industry stands.

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Author: Jimmy Aki

FinCEN’s Updated Travel Rule Proposal for Crypto Open to Public Comment

Last week, the Financial Crimes Enforcement Network (FinCEN) and the Federal Reserve invited comments on the proposed rule that would change the recordkeeping and travel rule regulations under the Bank Secrecy Act.

Under the current rules, financial situations must collect information related to funds transfers and transmittals of funds over $3,000. The information to be collected includes the name and address of the transmitter, the amount of the payment, its execution date, any payment instructions from the originator, and the beneficiary’s bank or recipient’s financial institution’s identity.

But as per the amendment, this limit is lowered to $250 for international transactions while the threshold for domestic transactions remains unchanged. This applies to transactions involving “convertible virtual currencies” (CVC) and “digital assets with legal tender status.” It further proposes to clarify the meaning of “money.”

The official report notices that “public use of CVCs has grown significantly in recent years.” Estimated transactions in Bitcoin alone were about $366 billion in 2019 and $312 billion in 2020 through August.

It further stated that malign actors have been using them for all sorts of illegal activities.

The proposed modifications will help them gain information in criminal, tax, or regulatory investigations and protect against international terrorism.

“FinCEN is aware that the CVC industry is working on developing systems and processes to achieve full compliance with the Travel Rule as applied to virtual currency transactions as a result of the distinctive characteristics of CVCs.”

They “welcome” comments on these efforts that will be accepted only for 30 days.

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Author: AnTy

FinCEN Penalizes ‘First’ Bitcoin Mixer, Helix, for Violating Anti-Money Laundering Laws

The Financial Crimes Enforcement Network charged Larry Dean Hamon, the founder, and CEO of bitcoin mixer Helix and Coin Ninja, for violations of the Bank Secrecy Act.

FinCEN imposed a penalty of $60,000,000.

Currently, he is being prosecuted in the US District Court for the District of Columbia on the charges of money laundering and operating an unlicensed money transmitting business, Helix, from 2014 to 2017.

FinCEN argues that as per its 2013 Guidance, exchangers and administrators of digital currencies are money transmitters under the BSA and obligated to register with it. As per the 2019 clarification, the same rules extended to the mixers of virtual currencies.

FinCEN’s report says between June 2014 to December 2017, Helix conducted more than 1,225,000 transactions with at least 356,000 BTC transactions.

“Mr. Harmon operated Helix as a bitcoin mixer, or tumbler, and advertised its services in the darkest spaces of the internet as a way for customers to anonymously pay for things like drugs, guns, and child pornography.”

The bitcoin mixing service allegedly laundered tens of millions of dollars in crypto for darknet markets like Agora, Abraxas, Hydra, Hansa, and Wall Street Market. Former darknet giant AlphaBay allegedly also had close ties to Helix as it laundered $27 million in Bitcoin for the now-defunct marketplace.

Besides circumventing BSA’s requirements, they failed to collect and verify customer names and addresses of over 1.2 million transactions. Helix also deleted the minimal customer information it collected, and Harmon was also engaged in transactions with fraudsters, narcotics traffickers, counterfeiters, and other criminals.

This action, which FinCEN said to be the “first” one against a bitcoin mixer, is the first time such activity is called “crime” by the Department of Justice (DOJ), which could mean further troubles for services using obfuscation to make bitcoin not traceable.

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Author: AnTy

DOJ’s First-of-its Kind Crypto Framework Targets Decentralized, P2P Platforms & Privacy

A 71-page long “Cryptocurrency Enforcement Framework” report has been published by the Attorney General’s Cyber Digital Task Force. It details the emergence of cryptocurrencies and the presenting opportunities for terrorists, rogue nations, and other criminals.

The report is described as “a cohesive, first-of-its-kind framework for those seeking to understand federal enforcement priorities in this growing space,” said Attorney General William Barr.

According to him, the US has been “enormously successful “ in blocking the criminals from using traditional currencies, and now wants to

“adapt our strategy and tools to 21st century financing, including to combat the use of cryptocurrencies to evade enforcement and harm our national security.”

The Attorney General recognizes the “tremendous promise” of cryptos and blockchain technology for the future, supporting the advancement of legitimate crypto uses and tech, but says it is “critical” that they follow the law as well.

Aiming for Privacy

The Framework divides the illicit use of crypto into three categories — financial transactions related to commissions of crimes, money laundering and covering legitimate activity from tax, and crimes like theft that directly implicates the crypto marketplace itself.

For this, DOJ, SEC, and CFTC are working together to explore legal and regulatory tools to address the threats and enforce federal law in the crypto space.

The report also points out the challenges the government is facing has been in respect to business models like kiosks, certain crypto exchanges, and casinos; and activities like “mixing” and “tumbling,” and “chain hopping,” which they say may facilitate criminal activity.

“Decentralized platforms, peer-to-peer exchangers, and anonymity-enhanced cryptocurrencies that use non-public or private blockchains all can further obscure financial transactions from legitimate scrutiny.”

According to the regulators, Web 3.0 in itself has a vision of — “humans will reclaim the internet, their data, and their anonymity from large outside forces” — can pose dangerous threats to public safety.

The agency is also fully aware of decentralized finance, which sees “exponential growth,” following the ICO boom.

The report came just days after deferral prosecutors went after crypto derivatives exchange BitMEX and its founders for preventing money laundering and arrested John McAfee over tax evasion charges and allegedly earning millions via crypto promotion.

The Department of Justice said in the report that it would “continue its aggressive investigation and prosecution of a wide range of malicious actors.” It further encouraged international cooperation in the investigations and making arrests.

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Author: AnTy

US FinCEN Set to Upgrade AML Guidelines in Wake of Evolving Illicit Financial Crimes

  • The US Financial Crimes Enforcement Network (FinCEN) has issued an advanced notice of proposed rulemaking (ANPRM) to amend its anti-money laundering (AML) guidelines, ensuring that all covered financial institutions maintain an efficient AML program.
  • This includes crypto entities that run under the Money Service Business (MSB) licenses, amongst other approvals, to offer this line of service to US residents.

According to the announcement on September 17, FinCEN is seeking feedback from stakeholders affected by changes to the AML requirements. This bureau of the US Department of the Treasury has since issued 60 days for interested stakeholders to have commented on prospectus regulatory amendments.

FinCEN noted that this move is particularly important in the combat of evolving illicit financial crime and will therefore set the stage for more solid AML practices,

“The regulatory amendments under consideration are intended to modernize the regulatory regime to address the evolving threats of illicit finance, and provide financial institutions with greater flexibility in the allocation of resources, resulting in the enhanced effectiveness and efficiency of anti-money laundering programs.”

Upon implementation, the prospectus changes will affect compliance and reporting by US domiciled financial institutions. FinCEN highlighted that the amendments are expected to be detailed enough, such that there is clear clarification on risk assessment methods, coupled with the consideration of oversight requirements under the US Bank Secrecy Act and AML priorities.

Crypto Businesses Amongst the Targets!

With a decade gone by since crypto made a debut, regulators appear to be paying more attention now that the trend is no longer a hype but a threat to traditional financial ecosystems. One of the areas that have proved incredibly difficult for oversight agencies is crypto in money-laundering and terror-financing activities.

It, therefore, comes as no surprise that FinCEN is joining its counterpart agencies like the IRS, which recently issued a $625,000 bounty for anyone who would crack Monero’s anonymous ecosystem. Going forward, more financial oversight authorities are likely to take a similar route as crypto gradually goes mainstream.

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Author: Edwin Munyui

EU’s Law Enforcement Agency, Europol, Targets Bitcoin Privacy Tool Wasabi Wallet

Europol, the European Union’s Law Enforcement Agency recently released a two-part report analyzing the impact of privacy tools in crimes related to cryptocurrency. Privacy tools such as Wasabi wallets are used by individuals to hide the origin of crypto transactions.

The law enforcement agency’s report cited recent research by blockchain analysis firm, Chainalysis, which suggested that almost $50 million USD worth of crypto was deposited in Wasabi wallets, and out of this $50 million, at least 30% came from the dark web.

The data is quite worrisome for the investigation agency as earlier transaction volumes on Wasabi only consisted of 1% dark web transactions. Thus, this significant rise in the use of privacy tools could potentially lead to its ban.

Governments Are Increasingly Using Blockchain Monitoring Tools

Bitcoin was previously advertised as a decentralized, privacy-centered cryptocurrency. However, in order for governments to regulate these crypto assets, the first thing they need is complete disclosure, which puts the privacy aspect in jeopardy.

While crypto proponents have been advocating for privacy tools, it has become a point of friction with the government agencies. The government wants to know every detail of the transaction while the privacy advocate believes it’s against the founding principles of cryptocurrencies.

This policy of full disclosure is an unbending demand from government agencies, agencies that are increasingly using blockchain analytics tools like Chainalysis. These tracking agencies can find the actual owner of the transaction despite the use of privacy tools such as Wasabi wallet.

The report from Europol’s European Cybercrime Centre (EC3) was recently leaked on Telegram, with the department later confirming that it was an authentic report meant for “law enforcement only,” The department in a statement said:

“It was written “only for a law enforcement audience,” Europol’s press department told CoinDesk, adding that “the report does not contain any operational information.” Still, it offers a peek into the law enforcement agency’s thinking. “How popular is the service?” the guide reads, answering: “Clearly popular enough to spark our interest.”

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Author: James W

Homeland Security Uses ICE’s Crypto Intelligence Program For Digital Asset Investigations

The United States’ Immigration and Customs Enforcement (ICE) recently disclosed that its frequent use of the Cryptocurrency Intelligence Program (CIP) for many of its Homeland Security Investigations where they relate to digital asset investigations.

Al Giangregorio, the HSI’s National Bulk Cash Smuggling Center (BCSC) unit chief has stated within an email, that the intel program was recently mentioned for the first time in ICE’s FY budget proposal for 2021.

No other explanations about CIP were given. Here is what Giangregorio said, though:

“The CIP supports any HSI investigation involving virtual currency or blockchain technology. The program has assisted in numerous investigations, including those involving methamphetamine and MDMA dealers, human trafficking, elder fraud, dark net market drug vending, child sexual exploitation sites, and, of course, trafficking in opioids.”

Cryptocurrency Wasn’t a Threat When BCSC Incorporated

Currently, the BCSC, which formally established the CIP, makes use of it in conjunction with the 2001 PATRIOT act to assist ICE’s HSI in tracking down financial criminals and cash smugglers.

Back in 2009, when BCSC incorporated, cryptocurrency wasn’t a threat, but it steadily became a more viable avenue for criminal activity, resulting in increased investment in crypto investigation tools by federal agencies. Giangregorio said:

“Over time, the BCSC has recognized that transnational criminal organizations have evolved and diversified [in] the way they transfer illicit proceeds. The BCSC established the CIP to adapt to changing methodologies and technology to target money laundering related to all types of criminal activity.”

HSI’s Anti-Cash Smuggling Experts Have an In-House Program

According to Giangregorio, the transition to digital money has prompted the experts working for HSI’s anti-cash smuggling division to build an in-house program.

This, and ICE’s FY budget proposal for 2021, may indicate how CIP was created. In its budget proposal, CIP is described as an unlicensed money services identifier for businesses conducting illegal crypto brokerage hotspots for darknet markets, peer-to-peer sites, trafficking and so on.

The cost of establishing and running CIP hasn’t been made public yet, but recent documents have shown that from 2017-19, $2.6 million was spent by the agency on contracts with Chainalysis alone.

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Author: Oana Ularu

Mnuchin Tells Congress Tougher Laws Will Be Introduced On Cryptocurrency Payments Soon

  • US Financial Crimes Enforcement Network (FinCEN) is on track to releasing new requirements for the dynamic cryptocurrency space, Steve Mnuchin assured Congress.
  • Authorities need to follow funds to ensure they don’t end up for Money Laundering purposes

During a recent Senate Finance Committee hearing, Steve Mnuchin the U.S. Treasury Secretary called on the FinCEN, a U.S financial regulatory authority, to put in place new cryptocurrencies regulations and guidelines in a bid to reduce the money laundering, illicit trades and activities that cryptocurrencies purportedly enhance.

Mnuchin was in Congress answering Senator Maggie Hassan (D-N.H.), on how the budget increases Treasury plans to bolster monitoring and prosecution of terrorists and criminal rings that funnel funds using crypto. He didn’t give much details but he stated that they had zeroed in on cryptocurrencies, a topic they had given much thought after lengthy discussions with other agencies and watchdogs.

They would want technology to progress with caution by ensuring that digital assets aren’t simply being stashed for criminal enterprises. This would be made possible only if the authorities would be able to follow a trail ensuring that the funds weren’t for money laundering purposes.

“We want to make sure that cryptocurrencies aren’t used for the equivalent of old Swiss secret number bank accounts.”

In a previous White House briefing Mnuchin has argued that the cryptocurrencies in place have been breached by criminal fronts to facilitate illegal dealings such as ransomware, extortion and even in extreme cases Human and Narco trafficking. He added that the regulators wouldn’t stand by as crypto firms facilitate such with mentions of BTC and Libra.

“To be clear: FinCEN will hold any entity that transacts in Bitcoin, Libra, or any other cryptocurrency to its highest standards.”

FinCEN Tough Stance

FinCEN’s top brass has constantly reiterated their position on Crypto regulations. Previously Kenneth Blanco, director FinCEN has offered stern warning to crypto firms and start-ups that don’t follow BSA and AML regulations of dire consequences. The Securities and Exchange Commission(SEC), Commodity Futures Trading Commission (CTFC) and FinCEN recently released a joint press statement where they reminded actors in the crypto space to follow BSA and AML regulations set aside by regulatory authorities.

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Author: Lujan Odera

FinCEN Chief: US Will Enforce ‘Travel Rule’ For Crypto Exchange to Combat Money Laundering

Kenneth Blanco, the Financial Crimes Enforcement Network (FinCEN) director, said on November 15th that the US government will enforce a ‘travel rule’ requiring crypto companies providing wallet services and trading digital assets to provide information on their customers.

The new rule is meant to prevent money laundering and requires crypto exchanges to verify the identity of their customers, also to identify parties involved in transfers up to $3,000 and higher. The information on the transfers needs to be transmitted to counterparties if these exist.

Kenneth Blanco Says the News Shouldn’t Come as a Shock. At a New York conference hosted by the blockchain analysis company Chainalysis, Blanco said:

“It (travel rule) applies to CVCs (convertible virtual currencies) and we expect that you will comply period. That’s what our expectation is. You will comply. I don’t know what the shock is. This is nothing new.”

The US government has decided to make a move seeing the crime in cryptocurrency is now using billions of dollars. Investigators all over the world have their eye on money laundering hubs activating in the virtual world. In August, Ciphertrace reported that fraud, scams and thefts in the cryptocurrency space have exceeded $4.3 billion, just in 2019.

The Rule Complies to Anti-Money Laundering Standards

This ‘travel rule’ was issued back in 1996 by FinCEN. It complies to the standards that apply to all financial institutions based in the US. Its coverage was extended in 2014 so that it applies to crypto exchanges too. In June 2019, the global and inter-governmental organization that fights terrorism financing and money laundering US Treasury led-Financial Action Task Force (FATF) has released some guidelines on how money laundering in the crypto environment is taking place.

FATF also informed crypto exchanges they need to comply with the ‘travel rule’ in a year from June. Blanco continued by saying:

“FinCEN…has been conducting examinations that include compliance with the funds’ travel rule since 2014,”

He also added that money laundering is the most common violation of businesses trading in virtual currencies.

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Author: Oana Ularu